Best Buy Probes CEO Relationship

Best Buy's investigation into former CEO Brian Dunn is exploring if he misused company assets during an alleged relationship with a female subordinate, people familiar with the matter said. Drew Dowell has details on The News Hub. Photo: Getty Images.

By

Miguel Bustillo,

Joann S. Lublin and

Ann Zimmerman

Updated April 12, 2012 6:40 p.m. ET

Best Buy
Co.
's investigation into the personal conduct of former Chief Executive
Brian Dunn
is exploring whether he misused company assets in the course of an alleged relationship with a female subordinate, people familiar with the matter said.

ENLARGE

Brian Dunn

The electronics retailer declined to discuss any details of its continuing investigation Thursday, saying it planned a full airing of its findings once the inquiry by the board's audit committee is complete.

Best Buy declined to disclose whether the woman, a 29-year-old who worked in a leadership training institute at the company's Richfield, Minn., headquarters, was still employed by the company, or to detail her exact duties. As of Thursday, her Facebook page still listed her as a member of the company network.

The woman in question declined to speak to The Wall Street Journal, which reached her through her family. Her parents declined to comment.

But a person close to her said the incidents that led to complaints to the board were "something small that people blew out of proportion."

Best Buy declined to comment on that assertion. "The board's findings will be made public and appropriate action will be taken if warranted," said Greg Hitt, an outside public-relations consultant who is acting as spokesman for the board.

Mr. Dunn, who is 51 years old and married, couldn't be reached for comment Thursday. He resigned from the company on Monday, culminating a 28-year-career that began as a salesman on the store floor, amid what the company described late Tuesday as a probe into his personal conduct instigated by complaints to the board.

The audit committee tapped high-powered legal talent more than a week ago to help investigate the allegations, according to a person familiar with the situation. It is using
William R. McLucas,
a former enforcement chief of the Securities and Exchange Commission, and
Thomas L. Strickland,
who, like Mr. McLucas, is a partner at Wilmer Cutler Pickering Hale & Dorr LLP in Washington, D.C. Best Buy directors hired the law firm "within a day or two" after they got wind of complaints concerning Mr. Dunn, another person close to the situation said.

Related

Former Best Buy Chief Executive
Bradbury H. Anderson
said in an interview Thursday that the probe had wounded morale at the electronics chain, which is struggling to adapt its big-box business model to new competitive threats from online retailers such as
Amazon.com
Inc.
and the increasing prominence of
Apple
Inc.
's retail stores.

"It almost could not come at a worse moment," Mr. Anderson said. "A lot of people are just heartsick. I have been in conversations with people who have been in tears."

Mr. Anderson, who worked at the retailer for 36 years since its early days as a stereo chain called Sound of Music, said Mr. Dunn's appointment as CEO in 2009 had been very popular with rank-and-file workers, who saw him as one of their own.

"The reason I wanted Brian as CEO is he was of the culture," he said. "There are all kinds of excellent people in the company, but the overwhelming likelihood is that they will have to go outside for leadership now."

One former co-worker described Mr. Dunn as a "hardworking and ethical" leader whose wife was frequently at his side at company events. "Best Buy was his life," the person said.

Mr. Dunn's Twitter account, formerly @BBYCEO, is now @Briandunn and described him as a "tech gadget junkie" who "worked at Best Buy for 28+ years." In one recent exchange, he traded messages with former basketball player Magic Johnson, who told Mr. Dunn that "God has another important job for you."

Best Buy said Thursday afternoon that its board had appointed a global search committee to look for a new CEO, headed by director
Kathy J. Higgins Victor.
It expects to take six to nine months to find a CEO.

Before disclosing the probe, Best Buy announced Tuesday morning that Mr. Dunn's resignation was the result of a "mutual agreement that it was time for new leadership to address the challenges that face the company." Later that day, it said "certain issues were brought to the board's attention regarding Mr. Dunn's personal conduct.''

Some governance experts criticized the company for failing to immediately disclose that the board's audit committee was investigating Mr. Dunn's personal conduct and that he "chose to resign" before the probe was done.

"It's always good business and good governance to disclose what you need to disclose correctly the first time,'' said
Paul Lapides,
head of the Corporate Governance Center at Kennesaw State University in Georgia.

"In these situations, transparency is critical,'' according to
Charles Elson
,
head of the Weinberg Center for Corporate Governance at University of Delaware's business school. "The fact that you don't initially disclose makes everyone look bad.''

Best Buy has stated that the investigation is "unrelated to the company's operations or financial controls" and doesn't affect its core business.

News that the probe involved a female subordinate was initially reported Thursday by the Minneapolis Star Tribune.

Mr. Dunn, who was only the third CEO in Best Buy's 46-year history including founder
Richard Schulze
,
had outlined a plan to gradually move the company away from big-box stores just two weeks before his resignation, when the company disclosed a $1.7 billion quarterly loss.

Interim Chief Executive
G. Mike Mikan,
said in an email to company employees that he intends to continue the turnaround plan, which involves remodeling some big-box stores in San Antonio and Minneapolis, closing others, and adding more small stores focused on mobile phones.

"I know the news of Brian's departure was a surprise, and that the shift in focus of the news coverage later in the day likely raised additional questions for many of you," he told employees. "I'm very aware that was difficult to read and experience."

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